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Common Stock Market Myths Corrected

There are many common beliefs about investing in stocks which are simply not true.


1. Investing in stocks is not like gambling.

Many people believe that investing in stocks is just like gambling but it simply isn't true. When you buy a share of common stock, you are buying a share in a company which means you own a part share in the company's assets and can expect to share part of its profits.

The value of those assets and profits do change over time, which is the general reason stock prices move up or down, as investors assess those values and estimate profits. Over the long term, observing the price of a stock will give a reasonable idea of the value of the company.

Gambling, on the other hand, means placing your money on a chance event and hoping to win. There is value in an investment in stocks, although prices do go up or down. There is no value in the act of gambling.


2. Investing in the stock market is not only for rich people.

It's a common belief that you need to be very wealthy to invest in stocks but really, anyone can. You can start with a small sum and keep adding to your investments when you see an opportunity or as your savings grow. You can also choose to reinvest some of your profits.

These days, tools such as the internet can help ordinary people learn more about intelligent investing. There are also learning opportunities such as seminars given by the Philippine Stock Exchange and other institutions which can help you learn more about sound stock investing.


3. When a stock's price keeps going up it will also come down.

Not necessarily. A stock's price can keep climbing because the company behind it is well managed and consistently profitable. This is not to say there will not be small fluctuations in the daily price.


4. A cheap stock isn't always a good buy.

Just like anything you buy, such as clothes or a car, price alone is not an indication of value for money. A stock may be cheap because it is issued by a company that is badly managed and fails to deliver profits. On the other hand, some stocks can be cheaper than their real value and will eventually go up in price. Again, research and knowledge are needed.


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